Cloud

Cloud Leaders: Act Now

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It is tempting to dismiss cloud computing as another product of the well-oiled technology hype machine. But consider these facts: Mega-technology vendors are pouring billions of dollars into cloud products. Cloud vendors are realizing record growth. Analysts forecast cloud services as a $100 billion-plus opportunity in just a few short years.

Is cloud computing worth all of this excitement? In a word: Yes.

Sand Hill Group’s new study,Leaders in the Cloud,” proves that the business value of cloud computing is real, the road to enterprise cloud adoption is shorter than most experts think, and both customers and vendors must act now to build the cloud solutions that will revolutionize business in the coming decade.

It’s the Business Value

“People are asking the same questions about the cloud today that they did about Internet back in 1997.”

Think back to 1997 and the buzz surrounding the Internet. Consumers and companies were excited about the technology’s potential but worried about security, privacy, bandwidth, standards and more. In the end, what enabled the Internet to transform communication and commerce? Business value.

Cloud computing will deliver even greater benefits to companies – and it will revolutionize enterprise IT in the process.

Interviews with forty “Leaders in the Cloud” describe cloud computing’s ability to increase ROI, decrease TCO, speed development, improve reliability and renovate the perception of IT in their companies. The result? A more agile, competitive business.

  • Realizing multi-fold decreases in cost compared to traditional solutions
  • Developing applications on platforms in 15 minutes
  • Creating applications over a weekend
  • Consolidating server investments from 13 machines to one
  • Reallocating IT budgets from 80 percent maintenance to 80 percent innovation

Tthese are but a few of the real-world examples of bottom-line business benefits already being realized by cloud leaders and detailed in our new study, “Leaders in the Cloud: Identifying the Business Value of Cloud Computing for Customers and Vendors.”

Based on 40 in-depth interviews and quantitative surveys of more than 500 IT executives, the study examines the cloud computing initiatives at companies today, the plans for future deployment, the business benefits realized, the challenges encountered and the details on specific use cases of cloud technology. Eight of the interviews were conduced with software industry executives responsible for cloud strategy and products within their organizations in order to gain insight from the vendor perspective.

The study finds that even in its infancy, cloud computing is already delivering significant value to companies. Although technological and organizational challenges to adoption remain, CIOs report the pursuit of IT-driven business benefits will only increase their cloud computing commitment and investment in the near future. Gaps in technology and vendor offerings remain to be filled.

The following excerpts from the Leaders in the Cloud report look closer at the specific business benefits realized through cloud computing, the state of cloud adoption and the drivers behind the move to the cloud.

The Business Value of Cloud Computing

Leaders in the Cloud found early deployers are achieving significant bottom-line business benefits from early cloud computing initiatives.

The Executive Summary of the report identifies fifteen business benefits experienced by cloud leaders. Consider these three benefits – strategic alignment, agility and ROI – and the associated findings from the study.

Strategic Alignment

“I have never established a cloud computing strategy that everything needs to go off-premise or move to some type of hosted model. The driver behind it all is a business need.”

For decades, IT and business executives have struggled to speak the same language, work together and align goals. But in our study, cloud leaders expressed optimism that change is on the horizon. CIOs were unanimous in saying the primary driver for adopting cloud computing is to meet business needs.

As the IT organization leverages the cloud to solve each problem with new levels of speed, flexibility and cost-effectiveness, the business leaders gain renewed respect and excitement for IT – and for the cloud. Early inroads by SaaS vendors selling to non-IT executives resulted in security, governance and maintenance concerns. Today, CIOs describe a more collaborative evaluation of cloud solutions involving both IT and business leaders with one common motivator: advancing the goals of the company.

Agility

“We were halfway through the project and the business decided to dramatically change the requirements of the system. We were able to respond much more quickly than the original on-premise team would have delivered.”

The “agile business” is the focus of many corporate mission statements today. IT executives believe cloud technology can help companies reach that goal: “business agility” was the No. 1 driver of cloud computing adoption, mentioned by 49 percent of respondents (see figure below). The concept of agility incorporates many of the ideas detailed on the following pages, including flexibility, speed and innovation. Enterprise IT organizations can develop and deploy cloud solutions quickly and efficiently. The cloud enables enterprise IT organizations to anticipate and respond to the changing needs of the business more quickly and efficiently than ever before.

ROI

“It is hard to quantify, but compared to an on-premise solution, [the cloud solution] is cheaper by at least 200 to 300 percent.”

In today’s challenging economic climate, it is not surprising that 46 percent of IT executives surveyed cite cost efficiency as the most important driver of cloud computing for their companies. The good news is that CIOs reported significant cost savings for cloud projects compared to their traditional alternatives – in fact, half of respondents reported cost savings of greater than 10 percent. Early adopters of cloud computing report five-fold savings in cost. Looking at an apples-to-apples cost comparison between an on-premise solution and an SaaS solution over a five- to seven-year period, SaaS often proves to be 25 percent to 50 percent less expensive — a data point validated by several CIO interviewees.

Are Customers Moving to the Cloud? Current State of Customer Cloud Initiatives

The move to the cloud has certainly begun. A total of 60 percent of IT executives surveyed report that their company is currently using cloud computing or plans to adopt the model in the next three years. This short excerpt from Chapter 4 of Leaders in the Cloud initiatives examines the state of cloud deployment in enterprises surveyed.

Companies are moving to the cloud in a variety of ways, from simply monitoring the progress of the model to moving all back-office systems into the cloud. Our survey of IT executives found that more than half of respondents are “watching and learning” or experimenting with pilot projects this year (see figure below).

Another third of executives surveyed said they are deploying non-critical applications, while fully 18 percent say they will deploy mission-critical applications. Most important, only 3 percent of respondents say they are not evaluating the cloud model whatsoever.

Interviewees described a veritable laundry list of applications and projects currently running in the cloud. Cloud projects shared several characteristics. Most respondents were not deploying any mission-critical applications in the cloud, and the applications running had little exposure to core systems. The projects were not often aimed at external customers but internal groups. Very often the applications were of a specialist nature. Cloud projects were also often short-lived or temporary.

For some large enterprises, the move to the cloud is only beginning. Several CIOs described current cloud initiatives as “experiments,” probing the boundaries for potential applications to test until the cloud is “ready” for large enterprise adoption.

One technology director described the need to restructure the entire IT environment of the company and virtualize the majority of it in order to take advantage of the cloud properly – a far-off proposition.

“The major transactional back-office applications/systems are not going to be rewritten for the cloud any time soon. We are going to have those hunkers running for a long time. What we can expect is that for other reasons, we are going to get improved performance out of the devices. About 40 percent to 50 percent of our applications fall into that category and I’m betting they are going to stay internal. It will take more than five years for us to really hit some of these applications.” - Director of technology, petroleum company

What Moves Customers to the Cloud?

Internal trigger points and “must haves” for adoption drive companies to the cloud.

“Everything in computing has become very complex over the last 40 years; the amount of engineering know-how you need to run a modern-day data center has escalated in the last decade to the point where it doesn’t make any sense to try and do it all ourselves. It’s just a large amount of effort and a waste of time deciding what technology to use, what software to buy and so on. Our time is better spent in helping the needs of the business.” - CIO, software vendor

Cloud computing is most certainly the hottest trend in business computing today. Vendors, customers and service providers are all scrambling to learn everything possible to understand what makes sense for their businesses. This short excerpt from Chapter 5 of the study report looks closer at the internal adoption process for cloud technology.

“Hype plays a big factor in pushing the market forward. When all the big vendors start announcing big cloud initiatives and start pouring billions of dollars into cloud projects, customers start to notice and begin to ask themselves and other vendors about their cloud strategy. The thing on the CIO’s mind is that he needs to have a position on the cloud because the CEO and board have begun to ask about the company’s cloud strategy.” – Chief technologist, software vendor

Interviewees from large global corporations described the need for a gradual, low-risk move to the cloud. Three stepping stones were described as helpful to move to a cloud strategy: grid computing, virtualization and ASPs.

One respondent explained his company’s cloud process as beginning in 2004 with compute and storage grids. A grid model was originally pursued because infrastructure costs were too high and the technology too inflexible. Comfortable with the benefits of the grid, the company then began to pursue a cloud database concept in 2008; it then began to expand to external and hybrid clouds.

Other executives were very comfortable with a model involving internal virtualized services. Moving some of these services into the cloud was a logical, if not natural, step forward. Another interviewee explained that his company’s usage of the ASP model made the transition to SaaS very easy.

Ultimately, the CIO is an investment manager in technology and in deciding how that invest-ment yields returns for the business. Several CIOs described the cloud as a powerful new tool — one that can be leveraged when the situation makes business sense.

“We look at the cloud opportunistically. For the business problems we have to solve, we will look at various technical solutions including the cloud. What’s changed in the past few years is that the robustness, the quality, the stability, the overall cost-benefit ratio for these cloud solutions have become more compelling. For me, it’s simply a tool in the CIO toolbox; it’s part of the architecture, and each decision and problem we solve we will look at a cloud solution and we will compare it with alternatives.”

In fact, 30 percent of executives surveyed report that the CIO is the most important driver of cloud computing adoption within their companies, followed closely by the IT department overall.

Executives described a variety of triggers for moving to the cloud, including the end-of-life of a particular software product, outgrowing their current solution, a data or server security scare, the need for redundancy, and the need to quit paying high license and maintenance fees to software vendors.

Federal Government Forays Into Cloud Computing

The federal cloud computing vision is exciting to technology vendors and the industry in general. Why? It’s quite simple. With largest IT budget ($79 Billion) on the planet, the U.S. government represents—particularly in the current woeful economic climate — the largest and most reliable source for IT spending today and therefore can wield an enormous influence on how the industry will define and use the cloud.

The Leaders in the Cloud Expanded Report includes an in-depth look at the unique considerations of government cloud initiatives and their implications for cloud vendors. The analysis is based on interviews with six top officials in charge of cloud computing strategy at major federal agencies.

The market is huge, but the scale of the technical, political and cultural challenges is equally daunting. Vendors have to take into account some of the unique requirements of the governments to sell into the government market.

“The cloud vendors should start offering services based on high, moderate [and] low risk-based classifications ad meet the associated set of security, audit and compliance controls if they are to be taken seriously by the government.” — Security director, government agency

There is a big opportunity for vendors to build capabilities from the ground up to meet the exacting needs of government agencies and other large enterprises with high levels of security and privacy requirements.

Insight for Cloud Vendors

The popularity of the cloud is driving many vendors—from startups to megavendors — to  develop solutions. Still, numerous gaps remain in functionality and services. CIO interviewees identified a wide variety of product, solution, support and service needs – for both small and large companies, and in specific sectors — that they require from cloud vendors in order to speed cloud adoption.

Based on the first-hand experiences of the CIOs interviewed, Leaders in the Cloud includes a wide range of implications and ideas for cloud vendors. It is clear that cloud leaders need to act on these opportunities now in order to realize success in the rapidly-approaching cloud computing era.

Click here to find out more about the “Leaders in the Cloud” study, which contains further insight for both cloud customers and vendors, including more details on current initiatives and examples of enterprise use cases, an in-depth look at real-world challenges and solutions, strategies for cloud-proofing the application landscape, and the cloud’s profound impact on the role of the IT/organization.

Kamesh Pemmaraju heads cloud computing research for Sand Hill Group. Follow him on Twitter @kpemmaraju.

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